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Comment by paxys | Hacker News Reader

That's my point though. The board accepted the buyout offer. "Hands on the wheel" means keeping the lights on and making sure everything stays stable until the deal closes. Firing the company's product and revenue leads is the opposite of that.

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You're assuming that the deal will definitely close.

The deal can still fall apart for a number of reasons. The risk of this happening is far from remote. This is evident from the current stock price of about $46, which is significantly lower than the $54.20 Musk is offering.

These mergers never are almost never at parity months before closing. This one isn't even so far a spread, 15% rebate on proposed takeout price. Activision, with an offer from Microsoft for which even Buffett is partaking in the arbitrage, sits at 20%. Even back at the announcement in January, before this market turmoil which can threaten these deals, it traded at a like 14% discount.

With that in mind, special situations are clearly still a valid strategy.

If the market was highly/certainly confident the deal was going to go through it would be at ~54.20$ or higher (technically, although not likely much higher).

If you're 100% sure the deal goes through then that's essentially a free 6$ per share guaranteed right now.

Out of interest, why higher? Twitter does not pay dividends, and if you discount it to today, the 54,20$ in the future are worth less than 54,20$ today since no interest is paid on these shares? Even when i take inflation into account, the 54,20 have more buying power now than in the future so again I dont see why you would pay more.

Interestingly if the market was 100% sure the deal would go through I'm not really sure how it would work because that would mess up the options chain IV. The main reason would be speculation other's might push it higher before the actual deal. Call hedging will amplify this but it would be weird in this scenario.

EDIT: Actually it could go higher because of people covering cash-covered calls that are exercised or closing shorts that existed before the announcement - see below.

It looks like Twitter actually did go higher then 54.20 on April 5th to 54.57~54.92 [1]

The reason why it did IRL is several factors. One is speculation it could go higher due to volatility/inefficiencies. The biggest reason is most likely hedging against sold call options and closing short positions - which are both essentially positions that the deal won't go through. If somebody sold a share of twitter for 50$ thinking it would go back down but now wants out of the position they must buy the share which increases buying pressure and thus the price. Similarly if somebody sold a cash covered call and is exercised or hedge against it to limit losses they must buy shares at the current price (which is 100x per option). Again this increases buying pressure and thus the share price.

I swear there's a few other reasons I can't think of right now. It's basically from market inefficiency factors. Speculation (of the share value not future company value per-se) and hedging are the main ones in this case. In non-acquisition scenarios other factors include portfolio rebalancing, margin-calls, market orders, and poor order-book liquidity.

[1] I'm seeing different numbers from different sources but they're all around there - I'm not sure if they used sale price or the quote price etc, quoting a stock is a whole can of worms in itself.

Disclaimer: I can't claim to be any type of expert - some of this may be incorrect, and I'm a bit rusty

And that's because a lot of such mergers/buyouts fail.

That's why the price is never on parity.

Putting everything on hold until the merger closes is a severe dereliction of duty.

Indeed, there's no such thing as free money. You get payed (or burned) when trading on these mergers for bearing the risk of the deal failing or renegotiating.

Yep. Aside from Musk having the attention span of a 6 month old puppy: the margin loan requires Tesla's stock drop less than 40%, otherwise he has to personally bankroll the Twitter purchase.

Right now it's down 26% this month, more than twice the general market drop, and shows no sign of slowing.

Musk has already started trying to ditch the margin loan.

Only reason twitter hasn't tanked is people holding on hoping this deal goes through otherwise it would have dropped significantly with the rest of the tech index. My point is that its market cap is artificially overvalued currently on hopes that elon buys at 54$ (which i doubt he will)

I too believe that he'd be crazy not to renegotiate.

As far as I recall, they agreed on a break fee of ~$1bn if Musk walks away. But if he can lower the price to $40 a share (which is still far higher than market would probably be, at least in this market), he gets Twitter at $31bn instead of $42bn.

Painful break fee - worth it in current market conditions though his equity hes putting up will have been reevaluated downwards too.

And the only reason it’s $46 and not lower is that people are staying in the stock waiting for the Musk 15-20% payout. When it becomes clear that Musk isn’t buying Twitter, Twitter stock will implode instantly.

Could just be that Kayvon Beykpour got replaced by someone better at the job?

Baseball fans know of Wally Pipp, who was a solid first baseman for the Yankees for a decade or so. One day Pipp had a headache and was replaced in the lineup by a young Lou Gehrig, who turned out to be one of the greatest hitters in baseball history.

I have no idea if Jay Sullivan is a Lou Gehrig talent, but he's been doing the job while Beykpour is on paternity leave. If you're the CEO of Twitter and you believe the temp guy is doing a better job, why not make the change?

All I know is that Jay Sullivan has tweeted less than 700 times in his life, which does not suggest fantastic engagement with the product he’s supposed to be leading.

https://mobile.twitter.com/jaysullivan/status/15138653219411...

"If you're the CEO of Twitter and you believe the temp guy is doing a better job, why not make the change?"

Well, it's a big lawsuit, for one thing. Firing someone on paternity leave is not a great plan in the US.

At this level, a company may just accept that as a cost of doing business. But this is at least an answer to your question.

if you need an example of "hands on the wheel" look to nvidia's attempted purchase of ARM. all board says ok, all shareholders ok, passed through a lot of paperwork but no deal in the end.

Both Nvidia and ARM definitely needed "hands on wheel" regardless of what happened.

any company at this size needs "hands on wheel"

That is indeed an excellent example!

You do realize it's going to be months before the deal closes, and there's a chance Elon walks away from it due to market conditions or other reasons? In this reality, counting something like this as done seems premature. The reasonable course of action is that plans made prior to this deal continue. Elon can sort it out if / when he takes the helm.

Board may have accepted the terms but the valuation of twitter has since tanked as have the equity markets as a whole. As have musks fortunes from an equity perspective so unless all the numbers recalibrate to everyones liking deal is dead imho. The world outlook has changed since this was getting hashed out.

Why's that? There's a significant chance this deal won't close. There's also a chance that the deal will close and Parag will be kept on. And even if it happens and Parag goes, I don't think there's a great business case for just putting everything in amber. Twitter's competitors are moving ahead, so just freezing things will give them extra months of lead that Twitter can ill afford no matter who's owning it.

I think it's somewhere between possible and likely that Parag ran this change by Musk. Who is already on record as wanting high-level changes. So this could be just as easily read as the CEO honoring the board's acceptance and getting started early on the changes. Or it could be both: Something that both the current and future CEO saw as in the bests interest of Twitter.

So there's a few things that could be in play here.

1. The tech market right now is a shit show, Twitter has only been saved from the general market trends because of the Elon offer. Once the Elon offer closes or falls through, Twitter's stock will correct. While Twitter is healthier is the time to get set up for that inevitable correction. The current market is driving fairly drastic action in the Tech Sector, just ignoring it because you're, potentially, a lame-duck CEO would be irresponsible.

2. These firings and changes may have been in the works since Parag took over so this is a course of action that predates the Elon offer.

So…if the deal goes through the stock cannot “correct” because there will be no open market for twitter shares.

Elon is proposing to buy all the shares, not just a controlling majority. Twitter would no longer be on the NYSE.

So twitter can be saved from general market trends indefinitely, as long as whoever is bankrolling it can continue feeding it cash whenever twitter operates at a loss.

Elon isn't going to hold 100% of the shares. He already has a ton of VCs and other outside investors (including some funds) lined up to finance the deal. So Twitter will still be active on private markets.

"Keeping the lights on" isn't enough: to be a good CEO, he needs to keep making progress, especially on shared goals of both old & possible-new ownership.

One guess (albeit not one of high confidence) is that the outgoing head may have expressed some reservations about whatever balancing-of-concerns Agrawal was expecting, or even mentioned a firm intent to leave if/when new-ownership arrives. In that case, it'd be very reasonable for the CEO to say, "I need someone here who at least has a chance of, and can earnestly simulate an intent to, stay through the change-of-ownership."

Elon Musk's networth is a big mystery. Not because its private information (we all know Musk's holdings for the most part), but because in 2 or 3 months, the Fed will meet a few more times and may raise interest rates again.

TSLA's stock price may be $1000 by then, or it might be $500. If its $500, Musk may not have the physical money to finish this buyout offer, even if he wanted to.

This entire deal was made when Tesla was near $900 or thereabouts. But then the stock market started to change severely, the bond market changed severely, and now there's a lot of uncertainty if anyone really has enough money for everything to go through fine.

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Twitter's board has to keep both possibilities in mind. If Elon Musk's buyout offer fails (either due to Musk personally, or because of changing prices which rekt Musk's networth), Twitter will still need a plan for a Musk-free Twitter future.

There's a real risk the deal doesn't close. The lower TSLA goes the further away that deal gets. I think keeping the hands on the wheel to me means staying the course - executing on roadmap and vision - until the money is in the bank.

There is a non-zero probability that Twitter's board is simply calling Musk's bluff.

Musk loves attention, but dumping his Tesla holdings to keep getting it may be too much for him.

I wonder if he'll try to renegotiate the deal at a lower price. Given the entire tech sector has fallen precipitously since the first announcement, it wouldn't surprise me if Twitter's board accepts a haircut and does the deal anyway.

It was already a low ball deal.

Knowing Musks shenaningans, it's likely he wanted to sell his Twitter stock but wanted to pump it first with a semi-formal offer. Same he did with Crypto/Tesla.

Not surprising that Twitter board would call the bluff. Even if Musk tries to renegotiate to save face, the Twitter board will look better to shareholders by saying no to even lower offers.

So they can re-negotiate with NewTwittah at higher salary?

The fact that the stock price is roughly halfway between the pre-Musk price and Musk's bid suggests the market expects roughly a 50% chance the deal will actually go through.

its probably higher than that. Imagine what it would be if it had crashed along with everything else in the market. If the deal breaks the stock is probably worth 25-30$

That's a good point. Metaculus estimates 85%. If Parag thinks there's a non-trivial chance the deal falls through his actions make sense.

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